Some experts predict spill's tab will reach $10 billion

MATTHEW TRESAUGUE, HOUSTON CHRONICLE |
May 31, 2010

How do you put a price tag on the deep-sea worms and whales, the nurseries for baby shrimp and the coastal marshes that serve as the first line of defense from hurricanes?

With millions of gallons of crude oil pouring into the Gulf of Mexico and fouling the fragile Louisiana coastline, government officials, scientists and economists are beginning the complex task of determining the cost of the worst spill in American history.

The damage assessment will take years, considering the spill's expanding reach, from endangered sea turtles to distressed hoteliers along the white sand beaches of the Florida Panhandle.

Some early estimates have the bill approaching $10 billion.

Tying liability to profits

Identifying the value of natural resource losses is a priority because it will be the government's primary tool to hold BP accountable for the spill. A 1990 federal law requires the offshore well's primary leaseholder, BP, to cover the cleanup costs and a portion of the damage.

Some lawmakers are seeking to increase the liability limit to an amount equal to the last four quarters of a company's profits. For BP, in this case, the cap would be $20 billion.

Attorneys for the London-based oil giant have said it will pay “necessary cleanup costs” and “legitimate claims for other loss and damage,” regardless of the federal cap.

Some environmentalists say there is simply no way to compensate for harm to the Gulf's 32 threatened or endangered species and to the deep-water reefs that provide critical habitat for shrimp, crabs and other bottom life.

“You simply cannot make more (reefs), unless you have a few thousand years to wait,” said Doug Rader, chief ocean scientist for the Environmental Defense Fund. “The price charged for such damage should be enormous, as the costs to humanity would be very high — even without considering the gravity of the moral and stewardship failures involved.”

While the extent of the ecological damage is not yet known, the bill will exceed the amount paid by Exxon Mobil for the 1989 Exxon Valdez tanker spill in Alaska, experts said.

Barclays Capital, a global investment bank, estimated last week that the cleanup, payments to businesses that have suffered losses and other legal liabilities from the Gulf spill could exceed $9 billion.

Loss of 500,000 acres

Larry McKinney, the Harte Institute's executive director, said the estimate is conservative at this point, because oil will likely wash over marshes for months, if not years, even after the well is capped.

The researchers based their forecast on the loss of 500,000 acres of Louisiana wetlands, among the world's most productive and valuable coastal ecosystems.

“We thought 500,000 acres was pretty large,” said McKinney, who has led past damage assessments for the state of Texas. “I'm afraid at this rate, we're going to get there.”

McKinney said marshes will be the primary focus of the ecological accounting. That's because the wetlands provide functions beyond producing seafood, such as cleaning water of pollution and buffering New Orleans and the rest of Louisiana from storm surges.

A storm surge is the wall of water that moves like an extremely high tide in front of a hurricane. The marshes, or any other kind of land, quickly reduce the strength of winds and waves because they rob hurricanes of the warm water that fuels them.

If the oil kills the grasses that hold marshes together, then the land will recede into open bays, McKinney said.

“If it goes to open water,” he said, “it's lost for years.”

The Exxon Valdez spill illustrated the complexity of determining the price tag for every marsh or bird lost. Since then, officials have looked at how much it costs to produce another marsh or bird, rather than calculating a dollar figure on each loss.

So if an acre of wetlands loses productivity because of the oil, then the government will bill BP for the cost of replacing what's lost. In some cases, that might mean more than one acre of new marsh for each spoiled one, experts said.

“It's not, do we have the same number of pelicans as before? That's hard to do,” said Stan Senner, director of conservation science for the Ocean Conservancy.

“We want to look for wholeness here,” said Senner, who planned restoration for the state of Alaska after the Exxon Valdez spill. “Are all of the pieces of the ecosystem functioning as they should be? Until there is a recovery of all components, there hasn't been a recovery.”

In Alaska, that meant spending two-thirds of the $900 million received from the damage assessment on acquiring forest land. At the time, state officials said it was the best way to protect salmon streams and breeding grounds for wildlife, such as the marbled murrelets, a small seabird that lost about 10 percent of its population because of the spill.

The money came from a fund Exxon established to settle charges stemming from the environmental disaster.

The Gulf oil spill poses a new set of challenges for those assessing the damage. The volume of oil is in dispute — unlike the fixed amount in the Exxon Valdez tanker — and it's offshore and in a larger body of water ringed with diverse habitats.

The north-northeast part of the Gulf, the area closest to the runaway well, contains at least 8,300 species of plants and animals, according to the Harte Institute.

While there are several studies on oil's effects on marshes, there are limited baseline data from which to measure damages in the Gulf's deeper waters.